Cess on Income Tax
A simple guide to cess on income tax
This post will discuss the Income Tax Cess, including the various forms of cesses, how they are calculated, and how they differ from other taxes. Let’s go over each section in detail :
What is Cess on Income tax?
Cess is an additional tax imposed on taxes by the central or state governments for specific purposes. It allows the government to collect funds for particular purposes, such as education. These special taxes are temporary, and end after their purposes are met.
The government can use cess funds to support various sectors of the economy or specific social purposes. It can be applied to the basic income tax or charged on luxury and sin goods under the Goods and Services Tax.
How to calculate Cess?
To calculate the health and education cess on income tax, see this example below:
If Mr. Ram earns Rs 10 lakh and pays a total tax of Rs 2 lakh. The Cess is calculated using the tax amount of Rs 2 lakh. Here’s an explanation:
| Particulars | Amount (Rs) |
| Annual Income | Rs 10,00,000 |
| Tax Payable | 2,00,000 |
| Add: Education Cess @ 4% | 8,000 |
| Total Tax Payable | 2,08,000 |
Types of Cess on income tax
Here’s a list of some common types of cess taxes used in the country:
1.Health and Education Cess
In 2018, the government introduced the Health and Education Cess (HEC), which is 4% of income tax for individuals and enterprises. The money collected from this Cess is specifically intended to help the country’s healthcare and education services.
HEC funding supports various projects, including improving healthcare facilities, promoting health and wellness, and improving the general quality of education.
2. Cess on Crude Oil
Crude oil and natural gas extracted from domestic oil blocks in India are taxed at 20% of the total production volume. This Cess supports the growth of the regional oil industry.
3.National Calamity Contingent Duty
The Central Government imposes NCCD (National Calamity Contingent Duty) on cigarettes, chewing tobacco, and pan masala. In the 2023 budget, the government suggested increasing the NCCD on particular cigarettes by 16%.
4.GST Compensation Cess
You must pay a GST compensation cess if you purchase luxury or demerit items in India. Every Indian taxpayer has to pay this unless they have chosen the GST composition plan or are simply exporting certain commodities.
5.Road and infrastructure Cess
The road and infrastructure cess is charged on certain items such as high-speed diesel and fuel. It is required for four-wheelers and other heavy vehicles under sections 109 and 110 of the Finance Act of 2018.
This tax does not apply to two- or three-wheeled vehicles, electric or hybrid vehicles, etc. A road and infrastructure fee of Rs 1 is charged for each litre of high-speed diesel and petrol.
6.Construction Workers Welfare Cess
Under the Building and Other Building Workers’ Welfare Cess Act of 1996, employers must pay a 1% tax on building expenditures, as stated in Sections 3(1) and 3(3).
Other Types of Cess on income tax
1. Clean India Tax
In 2015, the government introduced a 0.5% tax on all taxable services to fund Swachh Bharat, a nationwide initiative to clean up roads, streets, and infrastructure.
2. krishi kalyan cess
This tax was imposed in 2016 to help India’s agricultural growth. It was levied as a 0.5% service tax on each service’s specified price.
3. Clean energy cess
A carbon tax, introduced in 2010, was aimed at the production and import of coal, peat, and lignite to encourage the use of greener energy sources.
Issues on Cess Charges
1. Lack of Transparency
One of the main issues with cess charges in India is the lack of transparency in the use of funds collected through cess. On many occasions, funds collected via cess are grossly underutilised.
2. Double Taxation
Cess charges are essentially double taxation, as they are charged on top of other taxes. This could lead to additional tax liability or make certain products more expensive.
3. Ineffectiveness
Cess charges may not always be effective in achieving their intended purpose, leading to wastage of public funds.
How is Cess different from other taxes?
The government adds cess charges to taxes like income tax, GST, and excise duty. This is the main difference between Cess and tax. Here are some more distinctions:
- The government collects taxes to finance various welfare and employment programs. However, a Cess is imposed for particular development or improvement initiatives, and the money raised can only be applied to those costs. Money not used in a given year is carried over to the following financial year.
- The central government and the state governments are required to split some taxes. However, this rule doesn’t apply to cess charges.
- The government can easily impose or eliminate cess charges, while changes to general taxes need amendments to tax legislation.
Final Word
Cess is excess money that enables the Indian government to create projects, solve social problems, and provide disaster relief. The government must utilise this money responsibly and ensure it reaches where it should go on time.
This concludes our discussion of the Cess on Income Tax. If you have any questions, please post them in the comment section below.
FAQs
1.Why is Cess levied in India?
Ans: Cess is charged in India to help the government raise revenue for various socioeconomic development programs.
2.Who is responsible for paying the cess tax?
Ans: Every eligible taxpayer pays a cess on tax in addition to their usual tax payments.
3.What is the 4% income-tax cess?
Ans: The central government collects a health and educational cess at 4% of income tax.
4.What is the income-tax cess rate?
Ans: The rate of cesses changes according to the government’s policies.
